NZ's housing boom tops world index

By ANNE GIBSON and ALAN PERROTT

New Zealand has topped a chart of house price rises in the world's developed countries and been given a warning that the boom cannot last.

In an article headlined "Hair-raising", the Economist has added New Zealand, Denmark and Switzerland to a list of countries tracked since 1975 - a chart on which New Zealand did not rate a mention until now.

Housing prices were rising at a rate of 22 per cent a year in the first part of this year, which put New Zealand at the top of the 16-country list.

The Economist said it was "the biggest increase of any of the countries we track".

"House prices have outpaced inflation everywhere in recent years except Germany and Japan, where prices have fallen.

"Among our 16 countries, prices are now at record levels in relation to average wages and rents in America, Australia, Britain, Ireland, the Netherlands, New Zealand and Spain."

But it warned that prices in many countries had dropped, and said markets where price rises were steepest were likely to suffer the most in any slump.

The magazine put New Zealand well up a second list showing how much prices would need to fall to return to their long-term average.

It calculated that, assuming the decline would take place over four years and wages would continue to rise at recent rates, house prices would need to fall by 10 per cent in America, 15 per cent in New Zealand and by 20 to 30 per cent in Spain, Britain, the Netherlands, Australia and Ireland.

Its New Zealand calculations are based on figures from the Government agency Quotable Value.

The Economist predicts that Australia's housing bubble could be the first to burst, and warns it will not be the last.

But the national president of the Real Estate Institute of New Zealand, Graeme Woodley, said yesterday that he was still waiting for the drop in house prices predicted since last November.

He did not believe the property bubble was about to burst, but said he did expect the rapid increase in house prices to slow over the next 12 months.

"Economists have been predicting the market will slow for a while. It'll happen one day - traditionally things do quieten down over winter - but I don't see any bubble bursting, the economy is just too strong."

Property investor and author Olly Newland believes an oversupply of cheap apartments will cause a crash, and predicted some investors would have to walk away from their deposits.

"More apartments will come onstream in Auckland over the next six months than have been built in the city over the past 10 years.

"Rents will be pushed down and that will have a knock-on effect throughout the market.

"The problem is greedy, naive, Johnny-come-lately investors who think capital gain is forever and trees grow to heaven."

But Ulf Schoefisch, chief economist for Deutsche Bank, said the market was not so over-inflated that prices would have to drop significantly.

"Unlike other countries ... our price rise has been driven by fundamental factors like population growth. Our view is that price inflation will slow to zero by early next year, but prices will not go backwards.

"Rather than going backwards, they won't go anywhere. I do not think people will feel like they will have to sell."

The Economist started its house-price indicators two years ago, backdating them to 1975. It uses figures from estate agents, lenders and official sources.

American house prices rose by only 1 per cent in the first quarter of this year, the smallest quarterly increase for six years.

Australia got special mention in the survey for its weakening housing market.

It said the main reasons for the collapsing market there were that first-time buyers had been priced out of the market, and demand from buy-to-let investors had dried up because net rental yields had fallen below mortgage rates.